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concerning the Farmers Insurance Group, including fraud
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An Orange County Superior Court judge Thursday awarded a
Placentia surgical equipment manufacturer more than $58
million in a lawsuit against Farmers Insurance Group,
saying the insurer acted in bad faith.

The award to Surgin Surgical Instrumentation Inc. is one
of the largest punitive damage awards granted against an
insurance company in Orange County Superior Court, said
the company's attorney, Daniel J. Callahan.

Judge C. Robert Jameson also directed attorneys for
Surgin Surgical to send a copy of the court case to state
Insurance Commissioner John Garamendi for investigation
of Los Angeles-based Truck Insurance Exchange, a Farmers
Insurance affiliate.

Truck Insurance Exchange, the state's largest carrier of
commercial insurance, and Farmers Insurance were
co-defendants in the suit. "The record is replete
with despicable, vile, malicious, fraudulent, oppressive
conduct on the part of Truck Insurance," Jameson
said. "This conduct warrants a substantial award of
punitive damages." It was the second judgment
against Truck Insurance Exchange in Orange County in as
many years. In 1991, the insurer was ordered by an Orange
County Superior Court judge to pay $56 million in a
similar case. Farmers Insurance officials and attorneys
denied any wrongdoing and vowed to appeal the case.

Surgin Surgical filed suit against Truck Insurance
Exchange in November, 1991, complaining that it failed to
provide coverage or represent the small firm when it
became the target of two patent infringement lawsuits
brought by Alcon Surgical Instruments Inc. of Irvine., a
subsidiary of Swiss food giant Nestle SA. Alcon Surgical
had filed two patent infringement suits in 1989 against
Surgin Surgical. At the time, the two companies were
manufacturing similar medical devices used in cataract
surgery. Surgin ran out of money during its legal
defense, Callahan said, and was forced to obey a
permanent order barring the company from making its
similar device.

The company has since shifted to producing optical
surgical products, such as laparoscopes, catheters
equipped with mini-cameras that are used in some forms of
surgery.

But Surgin Surgical, in its suit against Truck Insurance
Exchange, estimated that it lost some $12 million in
profits over the past four years and has spent $500,000
in legal fees. By contrast, Alcon sold more than 1.3
million devices with an
additional profit of $179 million because of the lack of
competition, Callahan maintains.

When Surgin approached its insurer, Truck Insurance
Exchange, to pay for its continued legal defense, it was
stonewalled by the company, even though the insurers' own
attorneys had recommended defending the small
manufacturer, Callahan said.

Farmers Insurance spokesman John C. Millen denied that
his company was guilty of Surgin Surgical's accusations,
adding that Jameson's ruling was "without factual or
legal foundation."

"In effect," Millen said, "Truck has been
punished for failing to do that which was never
required."

Millen, who declined to comment on Jameson's specific
remarks, added that the damage award was excessive for
such cases. "The decision is absurd," he said.
"It is clearly arbitrary and capricious. I have to
say this is another example of a legal system run
amok."

He added that "Truck is confident that this unlawful
judgment will not withstand appellate scrutiny."

But Jameson said that Truck Insurance Exchange had signed
a contract with Surgin and "both had duties to each
other in that contract." By ignoring terms of the
contract, the company had become guilty of bad faith.

Among them, Truck was responsible for not only providing
coverage to Surgin so the firm could defend itself
against Alcon, but it also had a duty to defend the
client.

"They failed to investigate the claims. They failed
to provide a defense," Jameson said. "They
consciously and in bad faith . . . avoided their
responsibilities under the policy. Truck clearly takes
its own interests ahead of its insured."

Jameson had also found that Truck Insurance Exchange was
guilty of "flagrant discovery abuses" during
this trial by not turning over documents to Surgin
attorneys preparing their case. As such, Truck Insurance
Exchange attorneys were barred from presenting any
witnesses or cross-examining the 14 witnesses provided by
Surgin Surgical's attorneys.

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